March Crude Oil is down $1.53 this morning at $77.80. The included chart shows that the crude oil market is challenging and breaking the recent consolidation lows despite the recent weakness in the US Dollar. The longer term trend is still up. Look at the price lows in May, July and late September and you will see that each successive price low is higher than the previous low. Also notice that the June, August and October highs were progressively higher. This is a classic bull market where the market is making higher lows and higher highs. The overall trend is still bullish until that pattern changes. Now that prices are on the defensive we should focus on the last weekly correction low which was in last September at $67.46 basis the March contract. So despite the break of the consolidation pattern, crude oil is still about $10 per barrel from changing the direction of the longer term trend. In the mean time, there are some key moving average points that could provide support on this selloff. There should be support near the 90 day exponential moving average, the blue line near $76.00, then below that near the 200 day exponential moving average around $74.37, the green line. The bad news, near term, is that the consolidation pattern has broken downward and the directional movement indicators are trying to turn bearish. The market isn’t closed yet today, so if prices were to reverse back into the trading range, then the near term pattern could look better, at least for now. Let’s see where crude oil closes today. In summary, if crude oil fell back to the low $70’s per barrel, I would not be surprised and may be interested in looking to put on a major long campaign at that time. Yesterday I tried to buy the March $107/$115 ratio call spread buy was unsuccessful and with prices down today, we will hold that trade out today. We will just stay with the position that we already have on.
Followers of this letter should have the following positions:
Followers should also be long one March Crude Oil ($62.00 strike) put option from $1.51.
Short 2 March Crude Oil ($57.00 strike) put options from 83 cents each.
March Crude Oil options expire in 85 days.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
